The NCUA is standing firm in its position that it doesn't wantto get involved in a lawsuit brought by a member against an Oregoncredit union, but according to a prominent industry attorney, lastweek's ruling could have repercussions for the federalregulator.

U.S. District Judge Marco A. Hernandez in Portland, Ore.,dismissedplaintiff Steven Knebel's claims against the $170 million St.Helens Community FCU of St. Helens, Ore., on May 20. Knebelsued the credit union after it allegedly violated bylaws bycounting mailed ballots during a special meeting to recalldirectors. According to federal credit union bylaws, only votesplaced in person at the meeting may be counted.

In his opinion, Hernandez wrote that the Federal Credit UnionAct doesn't provide Knebel with a private right of action infederal court. Furthermore, the judge questioned whether the FCUA,including the bylaws, has “the status of federal law.”

That's a problem for the NCUA, said Washington-based attorneySteven Bisker, because the agency incorporated the by-laws into theFederal Credit Union Act in 2007 specifically so members couldbring legal action against violating credit unions.

“This court has an opinion that says federal credit union bylawsare not federal law, which is clearly incorrect,” said Bisker, a former NCUA assistant general counsel who leftthe agency 25 years ago to open his own firm. “You don't like tohave a bad decision on the books. Although just because a courtsaid it doesn't make it so, you still have a decision in a federaldistrict court that says the bylaws are not federal law.”

Bisker said he realizes the NCUA has “bigger fish to fry” thangetting involved in a squabble between a credit union member andits directors, and has to give priority to safety and soundnesswhen allocating agency time and resources.

However, he said it may be prudent for the agency to getinvolved in a “friend of the court” capacity, which would allow theNCUA to make a statement regarding the status of its federalbylaws, without being a party to the case. Additionally, he saidincluding the bylaws in federal law also give the NCUA the abilityto take administrative action when suits between credit unions andmembers become costly. NCUA Public AffairsSpecialist John Fairbanks said he cannot comment on any pendinglitigation.

“We understand the plaintiff is planning an appeal, so weconsider this litigation to be continuing,” he said.

Indeed, plaintiff Knebel said he does plan to file an appeal infederal court, and will also file a suit in state court.

“We're not letting this die,” Knebel said. “Too many people arecounting on this.”

The disgruntled member said he also plans to meet with hismembers of Congress to ask them to pressure the NCUA into becominginvolved in the suit. Knebel said the case has become a matter ofprinciple, and he's fighting on behalf of not just his fellowmembers, but other credit union members that may face the samesituation.

And, Knebel said he's looking forward to the credit union'sannual meeting in June, when two board seats will be up for grabs.Last year, Knebel and his supporters successfully elected two ofits own to the board, and should they elect two more, the groupwould hold a majority.

The recall election followed a failed merger between St. Helensand the $154 million Wauna FCU of Clatskanie, Ore. Knebel is amonga group of members who opposed the merger and objected to theboard's firing of former CEO Jeff Schwarz.

Despite the NCUA's efforts to stay out of the case, both Knebeland credit union attorney Harold B. Scroggins III have sourced the NCUA in their legal arguments. Knebel submitted tothe court a legal opinion from NCUA General Counsel Mike McKenna solicitedby Bisker that said bylaw violations don't belong in state court.Although McKenna's opinion didn't specifically address the St.Helens case, the opinion did support Knebel's claims by statingthat only in-person ballots can be counted during recallelections.

Scroggins presented to the court a Sept. 7, 2012, email fromRegion V Director Elizabeth Whitehead to Knebel informing him theregion had dismissed his Aug. 27 complaint.

“We reviewed your complaint along with the information providedto us by the credit union. Our investigation of this matter did notreveal there is a material safety and soundness issue nor a threatto the fundamental material rights of the members,” Whitehead saidin the email.

St. Helens spokeswoman Barbara Harris was not available forcomment on Wednesday.